Overweight ITC, target Rs 360: Morgan Stanley
The brokerage has set a one-year horizon for the stock to hit the target price.
Morgan Stanley has an 'overweight' view on ITC with a target price of Rs 360.
Shares of ITC traded at Rs 273.3 around 1:30 pm on 9 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
The Government introduced an excise duty on cigarettes and tobacco products in the Budget.
Across all cigarette lengths, the excise duty levied is specific in nature and is a nominal levy of Rs 5 per thousand sticks.
There are no changes to the National Calamity Contingent Duty (NCCD) on cigarettes.
According to the finance minister, "Tobacco products and crude attract National Calamity and Contingent duty. In certain cases, this levy has been contested on the ground that there is no basic excise duty on these items. To address this issue, a nominal basic excise duty is being imposed."
Decisions governing tax revisions have shifted from the central government to the GST Council. Morgan Stanley thinks, tax revisions, if any, will be less frequent here on.
"We reach our price target of Rs 360 using sum of the parts, derived from a combination of our base case residual income values for all businesses. We use a base case RI value for the cigarette business given our expectations of a steady cigarette tax policy from here," the brokerage said.
The base case values are: Cigarettes (Rs 280), hotels (Rs 3), agri (Rs 10), paper and packaging (Rs 17), other FMCG (Rs 35) and cash (Rs 16).
Morgan Stanley assumes a 12.2 per cent cost of equity (6 per cent market risk premium, 8 per cent risk-free rate,and 0.7 beta).
Also, it assumes terminal growth rates of 6 per cent for all businesses except cigarettes (5 per cent).
"Adverse policy on cigarette consumption (tax, packaging, loose cigarette ban, etc.) is the key downside risk to achieving our price target," said the brokerage.
Moreover, ITC is unable to turn around the FMCG business, while severe downturn in cyclical businesses, with hotels trading below book value, is also among the risks for the stock.
Shares of ITC traded at Rs 273.3 around 1:30 pm on 9 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
The Government introduced an excise duty on cigarettes and tobacco products in the Budget.
Across all cigarette lengths, the excise duty levied is specific in nature and is a nominal levy of Rs 5 per thousand sticks.
There are no changes to the National Calamity Contingent Duty (NCCD) on cigarettes.
According to the finance minister, "Tobacco products and crude attract National Calamity and Contingent duty. In certain cases, this levy has been contested on the ground that there is no basic excise duty on these items. To address this issue, a nominal basic excise duty is being imposed."
Decisions governing tax revisions have shifted from the central government to the GST Council. Morgan Stanley thinks, tax revisions, if any, will be less frequent here on.
"We reach our price target of Rs 360 using sum of the parts, derived from a combination of our base case residual income values for all businesses. We use a base case RI value for the cigarette business given our expectations of a steady cigarette tax policy from here," the brokerage said.
The base case values are: Cigarettes (Rs 280), hotels (Rs 3), agri (Rs 10), paper and packaging (Rs 17), other FMCG (Rs 35) and cash (Rs 16).
Morgan Stanley assumes a 12.2 per cent cost of equity (6 per cent market risk premium, 8 per cent risk-free rate,and 0.7 beta).
Also, it assumes terminal growth rates of 6 per cent for all businesses except cigarettes (5 per cent).
"Adverse policy on cigarette consumption (tax, packaging, loose cigarette ban, etc.) is the key downside risk to achieving our price target," said the brokerage.
Moreover, ITC is unable to turn around the FMCG business, while severe downturn in cyclical businesses, with hotels trading below book value, is also among the risks for the stock.
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